At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, including investment analysis, psychology, science, technology, philosophy, etc. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product.
Here are the ten most interesting pieces that we read this week, ended July 14, 2017.
1) In the world’s best-run economy, house prices keep falling – because that’s what they’re supposed to do [Forbes ]
A fundamental principle of German economics is to keep housing costs stable and affordable. As per 2012 figures, one-bedroom apartments in Berlin were selling for as little as $55,000, and four-bedroom detached houses in the Rhineland for just $80,000. Broadly equivalent properties in New York City and Silicon Valley were selling for as much as ten times higher. Although conventional wisdom in the English-speaking world holds that bureaucratic intervention in prices makes for subpar outcomes, the fact is that the German economy is by any standards one of the world’s most successful. A key to the story is that German municipal authorities consistently increase housing supply by releasing land for development on a regular basis. The ultimate driver is a central government policy of providing financial support to municipalities based on an up-to-date and accurate count of the number of residents in each area. The German system moreover is deliberately structured to encourage renting rather than owning. Tenants enjoy strong rights and, provided they pay their rent, are virtually immune from eviction and even from significant rent increases. Meanwhile, demand for owner occupation is curbed by the German regulation. To cap it all, ownership of a home is subject to a serious consumption tax, while landlords are encouraged by favourable tax treatment to maximize the availability of rental properties. A key outcome of these steps is that Germany's managed housing market helps smooth the availability of labour. And by virtually eliminating bubbles, the German system minimizes the sort of misallocation of resources that is more or less unavoidable in the Anglo-American boom-bust cycle. That cycle is exacerbated by tax incentives which encourage citizens to view home ownership as an investment, resulting in much hoarding and underutilization of space. In the German system moreover, house-builders rarely accumulate the huge large land banks that are such a dangerous distraction for U.S. house builders. German house builders just focus on building good-quality homes cheaply, secure in the knowledge that additional land will become available at reasonable cost when needed.
2) Ray Dalio – The big picture [LinkedIn ]
Ray Dalio in this post discusses his view of the global economy and why he feels while the near term looks good, the longer term looks scary. That is because: a) the economy is now at or near its best, and he sees no major economic risks on the horizon for the next year or two; b) there are significant long-term problems (e.g., high debt and non-debt obligations, limited abilities by central banks to stimulate, etc.) that are likely to create a squeeze; c) social and political conflicts are near their worst for the last number of decades; and d) conflicts get worse when economies worsen. As a result, while he’s not worried about the near term, the worry arises about what these conflicts will become like when the economy has its next downturn. He showcases using a set of charts how the major economies right now are in the middle of their short-term debt cycles, and growth rates are about average. In other words, the world economy is in the Goldilocks part of the cycle. As a result, volatility is low now, as it typically is during such times. He says however the longer-term picture is concerning because we have a lot of debt and a lot of non-debt obligations (pensions, healthcare entitlements, social security, etc.) coming due, which will increasingly create a “squeeze”; this squeeze will come gradually, not as a shock, and will hurt those who are now most in distress the hardest. He seems most concerned in the long term about big differences in wealth and opportunity that have led to social and political tensions that are significantly greater than normal, and are increasing. Since such tensions are normally correlated with overall economic conditions, it is unusual for social and political tensions to be so bad when overall economic and market conditions are so good.
3) You are not as clever as you think you are [Source: Financial Times ]
A decade ago, a psychologist, Rebecca Lawson published a lovely paper on “cycology”. She posed a simple question: could people draw the basics of a bicycle? About 40%, including those confident in their ability to sketch pedals and forks, found it impossible. Fundamental errors included a bike frame linking the front and back wheels, making it impossible to steer, and the chain looping round both wheels. Even cyclists struggled. This shows that how our personal knowledge of how even everyday objects function is sketchy and shallow. We are individual ignoramuses who somehow manage to pool intelligence, and then brazenly bask in the collective glory. Before Ms Lawson wheeled out her bicycle challenge, the Yale psychologist Frank Keil had already been cataloguing our shaky grasp of how commonplace objects, such as zips, mobile phones and flush toilets worked. Almost universally, people thought they could explain them. But when they actually sat down and tried to articulate the mechanisms, most were stumped. Prof Keil and his colleague, Leonid Rozenblit, called it the “illusion of explanatory depth”, defining it like this: “Most people feel they understand the world with far greater detail, coherence and depth than they really do.” This phenomenon — which also suggests that people become humbler about their knowledge after having their deficiencies exposed — is surprisingly relevant to the way we think about policy. For instance, research suggested that voters who adopt extreme positions on issues, such as how healthcare should be financed, or a trading system for carbon emissions, become more moderate once they are asked to explain the policies.
4) The next battle in antitrust will be about whether one company knows everything about you [HBR ]
Erstwhile monopolies were easier to define within well-circumscribed industries. Concentration ratios or assessments of dominance based on relative market shares were straightforward to measure. More important, the anticompetitive or anticonsumer welfare effects of any such monopolistic structures were easier to pin down. However, digital markets do not follow the contours of conventional industry structures. They evolve more as interlocking ecosystems, and it’s often difficult to determine how a monopoly position in one part of that ecosystem affects the rest of it. Every search we conduct offers select facets of our persona to Google. Similarly, every movie we watch through Netflix, every question we ask Alexa or Siri, and every interaction we have with our friends on Facebook imparts different slices of our persona, each contributing to a full digital replica of ourselves built by a digital titan. It is not surprising that these titans are trying everything they can think of to capture different facets of our personas. This in part explains many of their new forays outside of traditional tech services into domains, such as automobiles and health care. A car can provide a treasure trove of information about our behaviour. Historically, many firms have had deep knowledge about only specific facets of an individual’s life. For example, financial institutions knew the financial lives of their customers; retailers accumulated knowledge about their customers’ buying habits; and even libraries had information on users’ reading habits. What they lacked, however, was a composite knowledge about individuals that came through the pooling of such information. Since competition was sector by sector, firms did not have the incentive to pool such information. Moreover, pooling disparate information was an onerous task, and no firm had the desire to expend resources on such an effort. The arrival of the digital age has changed this picture completely. Digital titans like Google, Amazon, and Facebook now recognize that having a complete digital replica is not only desirable but also feasible. It is desirable because of enormous cross-selling and cross-advertising opportunities that would accrue for the firm that gets there ahead of others. It is becoming feasible because of how digitization has enveloped our lives, how we routinely leave digital traces as we interact in the digital world. The ability to collect, connect, and integrate data from various sources will become the new competitive moat. This moat will restrict other competitors from gaining access to and control over individual digital replicas.
5) A math genius blooms late and conquers his field [Wired.com ]
June Huh’s math career began rather disastrously. A bad score on an elementary school test convinced him that he was not very good at math. He didn’t major in math, and when he finally applied to graduate school, he was rejected by every university save one. Nine years later, at the age of 34, Huh is at the pinnacle of the math world. He is best known for his proof, with the mathematicians Eric Katz and Karim Adiprasito, of a long-standing problem called the Rota conjecture. Even more remarkable than the proof itself is the manner in which Huh and his collaborators achieved it—by finding a way to reinterpret ideas from one area of mathematics in another where they didn’t seem to belong. This past spring, Institute of Advanced Study (IAS) offered Huh a long-term fellowship, a position that has been extended to only three young mathematicians before. Two of them (Vladimir Voevodsky and Ngô Bảo Châu) went on to win the Fields Medal, the highest honor in mathematics. That Huh would achieve this status after starting mathematics so late is almost as improbable as if he had picked up a tennis racket at 18 and won Wimbledon at 20. Yet it would be a mistake to see Huh’s breakthroughs as having come in spite of his unorthodox beginning. In many ways, they’re a product of his unique history—a direct result of his chance encounter, in his last year of college, with a legendary mathematician who somehow recognized a gift in Huh that Huh had never perceived himself. People who have observed his rise over the last few years imagine that this experience left him less beholden to conventional wisdom about what kinds of mathematical approaches are worth trying. Some of the biggest leaps in understanding occur when someone extends a well-established theory in one area to seemingly unrelated phenomena in another.
6) What we get wrong about technology [Financial Times ]
When asked to think about how new inventions might shape the future, our imaginations tend to leap to technologies that are sophisticated beyond comprehension. Yet when asked to picture how everyday life might look in a society sophisticated enough to build such technologies, our imaginations falter. For instance, some economists, like Robert Gordon disappointed by slow growth in productivity, fear the glory days are behind us. Others however, believe that exponential growth in computing power is about to unlock something special in the fields of artificial intelligence, robotics, virtual reality, nanotech, biotech and neurotech. Forecasting the future of technology though has always been an entertaining but fruitless game. Nothing looks more dated than yesterday’s edition of Tomorrow’s World. But history can teach us something useful: not to fixate on the idea of the next big thing, the isolated technological miracle that utterly transforms some part of economic life with barely a ripple elsewhere. Instead, when we try to imagine the future, the past offers two lessons. First, the most influential new technologies are often humble and cheap. Meagre affordability often counts for more than the beguiling complexity of a new invention. Second, new inventions do not appear in isolation. Instead, as we struggle to use them to their best advantage, they profoundly reshape the societies around us.
7) The psychology of oversharing facebook couples [The Atlantic ]
As it turns out, Facebook knows a lot of things about its users’ romantic lives. It knows when they’re falling in love, and it knows when they’re falling out of love. But what it sees in between may have a lot to do with the self-esteem of the individuals doing the falling. New research from Albright College found that people whose confidence is more closely tied to the strength of their romantic relationship—or those with higher levels of relationship-contingent self-esteem are more likely to use the social networking site to broadcast their happiness. Logically, it makes sense that relationship-contingent self-esteem (RCSE) which has previously been linked to lower overall self-esteem and higher social anxiety, could lead someone to seek validation by systematically “liking” each of their partner’s status updates or insisting on making things Facebook official. “There is positive correlation between your self-esteem being contingent on relationships and it being contingent on other things external to you (e.g., others' approval),” lead study author Gwendolyn Seidman said. “Those high in RCSE feel the need to show others, their partners and perhaps themselves that their relationship is ‘OK,’ and thus, they are OK.” Introverts were also more likely than extroverts to use Facebook both to show off their relationships and to keep tabs on their partners’ activity.
8) This cell phone doesn’t need a battery [University of Washington ]
University of Washington researchers have invented a cellphone that requires no batteries — a major leap forward in moving beyond chargers, cords and dying phones. Instead, the phone harvests the few microwatts of power it requires from either ambient radio signals or light. The team also made Skype calls using its battery-free phone, demonstrating that the prototype made of commercial, off-the-shelf components can receive and transmit speech and communicate with a base station. The new technology is detailed in a paper published July 1 in the Proceedings of the Association for Computing Machinery on Interactive, Mobile, Wearable and Ubiquitous Technologies. The team of UW computer scientists and electrical engineers eliminated a power-hungry step in most modern cellular transmissions — converting analog signals that convey sound into digital data that a phone can understand. This process consumes so much energy that it’s been impossible to design a phone that can rely on ambient power sources. Instead, the battery-free cellphone takes advantage of tiny vibrations in a phone’s microphone or speaker that occur when a person is talking into a phone or listening to a call. To transmit speech, the phone uses vibrations from the device’s microphone to encode speech patterns in the reflected signals. To receive speech, it converts encoded radio signals into sound vibrations that that are picked up by the phone’s speaker.
9) “Okja” is a vision of the future [The Economist ]
At the press screening of “Okja” at Cannes in May, there was a chorus of boos when Netflix’s logo flashed onscreen. Two hours later, though, the boos had been replaced by cheers. Not only was “Okja” a deliriously enjoyable romp, it was so unconventional that no major Hollywood studio would ever have funded it. If it weren’t for Netflix, the film wouldn’t have been released online, in cinemas or anywhere else. The difference is that a standard studio makes its money by selling as many cinema tickets as it possibly can. Netflix and other streaming services, meanwhile, make money by keeping their subscribers interested. They can afford to choose more adventurous, auteur-friendly projects. In other words, Netflix and Amazon are offering freedom and resources to idiosyncratic voices in a manner that studios have rarely done for decades. One of its boldest novelties is its internationalism. “Okja” is a story about global capitalism. Thanks to Netflix’s involvement the film does not have to be so aware of the boundaries between national borders and ethnicity and culture. “Okja” was shot in South Korea, Canada and the USA. It has lengthy sequences in which everyone speaks Korean, and lengthy sequences in which everyone speaks English, whereas in a typical Hollywood blockbuster the Koreans – if they appeared at all – would be given only a few subtitled sentences in their own language before switching to English. “Okja” also has one key scene in which Mija speaks Korean, the ALF chief speaks English, and an interpreter translates what they’re saying. What’s unusual about this scene is that we hear the whole of each line in both languages, so the dialogue lasts twice as long as normal. Slowing the pace as it does, this approach is almost never adopted in Hollywood. But maybe this technique makes sense in a globalised market. Big-budget American films are increasingly reliant on Asian audiences, so if they’re going to survive, they may have to treat those Asian audiences with the respect that “Okja” does. Backward-looking studios, as well as backward-looking Cannes habitués, should take note. Bilingual dialogue and online distribution might both be unorthodox at the moment. But they might both be the norm in just a few years’ time.
10) Overreaction to the terrorist threat is the perpetrator’s prize [Financial Times ]
In the EU, the chances of being killed by a terrorist in 2016 were just five times greater than being killed by lightning. The chances of being murdered for some other reason were more than 30 times greater than that of being killed by terrorists and the chances of dying in a sporting accident 51 times greater. Terrorism is frightening: indeed, its aim is to ignite fear. But surrendering to fear is to give terrorists what they want: the sundering of our open societies and the division of the world into believers and “crusader” enemies. It should be noted that 2016 was a relatively bad year for EU terrorism. Robert Muggah, an expert on terrorism, notes that between 2010 and 2014, the average probability of dying at the hands of a terrorist was 0.0018 per 100,000 (0.0000018%). This rose to 0.034 per 100,000 in 2015, then falling to 0.027 in 2016. This modest rise in the number of European victims of terrorism in recent years has struck fear in the hearts of many Americans: Donald Trump, for one, has milked it ferociously. Every terrorist attack is indeed an outrage. But it is also a political act. The aim is to sow panic and so induce a vicious spiral of action and overreaction. The goal is to destroy the possibility for Muslims and non-Muslims to live harmoniously side by side both within western democracies and in the world as a whole. This is a victory the author, Martin Wolf believes we must not give the perpetrators. Our response must be proportionate and principled: we must not abandon fundamental tenets of the rule of law; and we must also draw a clear line between perpetrators and enablers, on the one hand, and everybody else, on the other. It is of course possible to imagine actions so catastrophic that such relative calm could no longer be maintained. Nuclear or large-scale biological terrorism would, he expects, change everything. But that is not what we are confronting. On the contrary, the low-tech nature of many recent attacks — home-made bombs, lorries, cars and knives — suggests that a combination of controls on guns with effective action by, and co-operation among, security services has, so far, been quite effective.